AFAR Problem.doc

# Entity a paid p10000 share issuance costs and p20000

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Entity A paid P10,000 share issuance costs and P20,000 bond issue costs. Entity A also paid P40,000 acquisition related costs and P30,000 indirect costs of business combination. Before the date of acquisition, Entity A and Entity B reported the following data: Entity A Entity B Current assets 1,000,000 500,000 Noncurrent assets 2,000,000 1,000,000 Current liabilities 200,000 400,000 Noncurrent liabilities 300,000 500,000 Ordinary shares 500,000 200,000 Share premium 1,200,000 300,000 Retained earnings 800,000 100,000 At the time of acquisition, the current assets of Entity A have fair value of P1,200,000 while the noncurrent assets of Entity B have fair value of P1,300,000. On the same date, the current liabilities of Entity B have fair value of P600,000 while the noncurrent liabilities of Entity A have fair value of P500,000. 58. What is the goodwill or gain on bargain purchase arising from business combination? A. 50,000 goodwill B. 150,000 gain on bargain purchase C. 120,000 goodwill D. 70,000 gain on bargain purchase 59. What total amount should be expensed as incurred at the time of business combination? A. 20,000 B. 70,000 C. 30,000 D. 50,000 60. What is Entity A’s amount of total assets after the business combination? A. 4,520,000 B. 4,810,000 C. 4,750,000 D. 4,440,000 61. What is Entity A’s amount of total liabilities after the business combination? A. 2,240,000 B. 2,510,000 C. 2,320,000 D. 2,130,000

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Page 22 Numbers 62 and 63 (Business Combination – Acquisition of majority shares) Entity A acquired 80,000 out of 100,000 outstanding ordinary shares of Entity B which enabled the former to obtain control of the latter at an acquisition price of P1,000,000. Entity A paid P100,000 acquisition related costs and P50,000 indirect costs of business combination. At the date of acquisition, the net assets of Entity B are reported at P1,600,000. An asset of Entity B is overvalued by P60,000 while one liability is undervalued by P40,000. 62. What is the initial measurement of noncontrolling interest in net assets in the consolidated statement of financial position? A. 320,000 B. 300,000 C. 250,000 D. 316,000 63. What is the goodwill or gain on bargain purchase arising from business combination? A. 250,000 gain on bargain purchase B. 150,000 gain on bargain purchase C. 50,000 goodwill D. 200,000 gain on bargain purchase Numbers 64 and 65 (Step Acquisition) On January 1, 2018, Entity A acquired 30,000 out of 100,000 outstanding ordinary shares of Entity B for P90,000 or 30% interest. For the six months ended June 30, 2018, Entity B reported net income of P40,000. On July 1, 2018, Entity A acquired additional 60,000 ordinary shares of Entity B or 60% interest at a price of P4 per share or total cost of P240,000. Entity A paid P20,000 acquisition related costs and P10,000 indirect costs of business combination. The acquisition price per share of the additional shares clearly reflected the fair value of the existing interest of Entity A in Entity B. It is the policy of Entity A to initially measure the noncontrolling interest in net assets of the acquiree at fair value. The fair value of the noncontrolling interest in net assets of the acquiree is reliably measured at P50,000.
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